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Defusing Food Inflation

Imagine you’re sipping coffee at the church ice cream social. One of your city brethren proclaims to all within earshot how rich you’re getting on high commodity prices and how food bills are draining his wallet.

An opportunity will have presented itself for you to help enlighten non-agricultural Americans on what all is involved in getting food from farm to fork.

Here’s some cannon fodder.

USDA’s Economic Research Service calculates that the farmer’s share of the consumer’s retail food dollar is less than 12 cents. Food services, food processors and retail trade all get bigger shares than farmers.

The farmer gets about 24 cents of each dollar consumers spend on food eaten at home. The farmer’s cut of the food dollar spent away from home is about a nickel. That’s because a lot more labor and service goes into food eaten away from home. One way to stretch food dollars is to eat more at home. However, doing so would not help replenish the church coffers with revenue from the ice cream social.

Inflation picking up

Undeniably, food prices are rising. USDA projects the annual change in the consumer price index for food will run some where between 3% and 4% this year. That’s well above 2010’s 0.8%. But it’s a far cry from the recent peak of 5.5% in 2008.

Historically, food inflation and inflation in general have run higher than in recent years. By decades annual food inflation averaged:

* 8.1% in the 1970s

* 4.6% in the 1980s

* 2.8% in the 1990s

* 2.9% in the 2000s

In 2008 inflation in the energy price index and all commodity index topped inflation in the food commodity index. Not so in the immediate past. Food was the highest of those three indexes in 2011, prior to the oil price surge linked to political unrest in Libya.

Still, Americans are spending a modest 9.5% of our disposable personal income on food. About 5.5% of the 9.5% are spent on food eaten at home. Just short of 4% of the 9.5% are spent on food away from home. Back in 1960 food absorbed about 17.5% of the typical American’s disposable personal income.

And when your compatriot at the ice cream social responds that growth in his income is not keeping up with food inflation, you stroke your chin pensively and say, “Yes, that is a serious issue for many Americans.”